Question

X Company is planning to launch a new product. A market research study, costing $150,000, was conducted last year, indicating that the product will be successful for the next four years. Profits from sales of the product are expected to be $174,000 in each of the first two years and $106,000 in each of the last two years. The company plans to undertake an immediate advertising campaign that will cost $92,000. New manufacturing equipment will have to be purchased for $390,000; it will have zero disposal value at the end of the four years. Assuming a discount rate of 7%, what is the net present value of launching the new product? Tries 0/3 提交答案

Answer 1

Solution:

DE 34 35 Computation of NPV - X Company AR 36 Particulars Period Amount PV factor at 7% Present Value 37 38 Cash outflows: Initial investment (Equipment + Advertising) 0 $482,000.00 $482,000 39 Present Value of Cash outflows (A) $482,000 41 43 44 45 Cash Inflows Year 1 Year 2 Year 3 Year 4 1 $174,000.00 2 $174,000.00 3 $106,000.00 4 $106,000.00 0.935 0.873 0.816 0.763 $162,690 $151,902 $86,496 $80,878 46 47 48 Present Value of Cash Inflows (B) $481,966 Net Present Value (NPV) (B-A) -$34 68 69 70 72 73 74 75 76 77 786 (2) Sheet706 (15) Sheet390 (2) Sheet375 (4) Sheet226 (2) ILI O